Menu
Account
Indonesia’s Looming Energy Challenges
Image Credit: Anton van der Weijst on Unsplash

Indonesia’s Looming Energy Challenges

 
 

In less than a year, Indonesians will head to the polls for presidential and legislative elections. In public discussions, the energy sector is seen as one of the most influential sectors in determining the present government’s performance, due to the country’s tremendous potentials in fossil fuels and renewable resources. However, with the possible changes brought by the upcoming political year, a change of priorities may affect Indonesia’s energy development.

The government of Indonesia refers to the General National Energy Plan (Rencana Umum Energi Nasional/RUEN), a planning document to implement the National Energy Policy (Kebijakan Energi Nasional/KEN) which aims to direct the country towards independent, secure and sustainable development. According to Presidential Decree No. 22 in 2017, RUEN functions as a guideline to establishing national strategic plans.

Various energy issues have been identified through RUEN. One crucial issue mentioned is how local commodities are still heavily used for export. For instance, Indonesia produced 461 million tonnes of coal in 2015, putting the country among the highest coal producers in the world. Yet, the domestic use of total coal production is only 20 percent. For this reason, RUEN encourages Indonesia to reinforce the internal use of coal.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

There is another challenge related to renewables. The affordability for non-fossil fuel power is determined, among other factors, by non-fiscal incentives for fossil-based power plants. The fossil fuels subsidy increased the burden of government to at least $140 million in 2014-2015.  To overcome this problem, optimum incentives should be implemented by allocating more balance between renewables and fossil fuel.

Furthermore, the government also plans a strategic action to increase the country’s foreign direct investment and to start a Fossil Fuel Subsidy Reform Program in electricity. According to the latest accomplishment report by the Indonesian Ministry of Energy (MEMR) in 2017, 186 unnecessary regulations in all sectors were dismissed. Within the Subsidy Reform, the government has committed to apply a phasing-out subsidy to targeted recipients such as underprivileged communities.

In regards to the use of coal, Indonesia has amplified domestic consumption for electricity due to the operation of 35 GW Coal-Fired Power Plants since 2017. As a result, the government has successfully increased the electrification ratio from 88.3 percent (2015) to 95.35 percent (2017), exceeding the initial target of 92.75 percent by 2017.

As stated in the MEMR 2017 report, there are more than 70 project development contracts signed by the government to increase the development of renewable energy (RE). This includes the wind farm project in Sulawesi, geothermal and hydro in Sumatra, as well as solar PV in major cities across Java Island. Having high investment rates and great support in power infrastructure, the current government appears to be able to address most of the challenges identified in RUEN.

Apart from the government’s outstanding progress in 2014-2017, there are still some concerns as follows: the strategy to maintain oil production level; uncertainty on the achievability of 23 percent renewable in the energy mix by 2025; and the lack of clarity about the government’s priorities in energy due to the increase of financial burden on infrastructure projects.

The national target for oil production in 2017 is around 815,000 barrels of oil per day (bpd). However, the domestic oil production in 2017 was 800,000 bpd. Even though considerable effort has been made by the government, such as acquiring the Mahakam Block and applying a gross split contract system, the production level still appears to be difficult to increase.

As for renewables, according to the Directorate-General of New, Renewable Energy and Energy Conservation in 2017, their share of the energy mix in Indonesia amounted to 8.4 percent, leaving a lot of ground to make up to hit the 23 percent target by 2025.

Other challenge lies within the financial sector. A report from Bank of Indonesia illustrates the government’s debt is increasing due to infrastructure projects implemented since 2015. Although the financial support for infrastructure will contribute to Indonesia’s economic growth in the long term, it could impede the energy development plan targeted in RUEN in the short term.

The government is expected to address the upcoming challenges by identifying areas of priority for energy infrastructures. Also, the government needs to set up a consistent and long-term energy plan focusing on sustainable development. Even though following RUEN is an excellent reference to anticipate future challenges, inconsistency may deviate actions from the targeted project.

The upcoming political situation may affect and delay some energy programs. However, a viable plan with a commitment to increase economic growth should continue. Since Indonesia is a significant contributor to the ASEAN energy mix, the world will continue to observe Indonesia’s energy development.

Septia Supendi is an Acting Senior Officer for ASEAN-German Energy Programme (AGEP) at the ASEAN Centre for Energy (ACE).

Newsletter
Sign up for our weekly newsletter
The Diplomat Brief